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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------

For the transition period from  to
.

Commission File Number: 0-24849



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FIRST NILES FINANCIAL, INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 34-1870418                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|55 North Main Street, Niles, Ohio        |  | 44446     
|(Address of principal executive offices) |  | (Zip Code)

Issuers telephone number, including area code: (330) 652-2539



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Check whether the issuer (1) filed all
reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2).    Yes ̈No  x

Shares of
common stock, par value $.01 per share, outstanding as of August 3, 2006: 1,384,553

Transitional Small business Disclosure Format (check
one):    Yes ̈No  x



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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

(In thousands, except share data)



|                                                                                   |  |               |        |   |                   |   |        |  
|---------------------------------------------------------------------------------- |  | ------------- | ------ | - | ----------------- | - | ------ | -
|                                                                                   |  | June 30, 2006 |        |   | December 31, 2005 |  
|                                                                                   |  | (Unaudited)   |        |   |                   |  
|ASSETS                                                                             |  |               |        |   |                   |   |        |  
|                                                                                   |  |              
|Cash and cash equivalents:                                                         |  |               |        |   |                   |   |        |  
|Noninterest bearing                                                                |  | $             | 699    |   |                   | $ | 1,488  |  
|Interest bearing                                                                   |  |               | 686    |   |                   |   | 3,103  |  
|                                                                                   |  |               |        |   |                   |   |        |  
|Total cash and equivalents                                                         |  |               | 1,385  |   |                   |   | 4,591  |  
|Securities available for sale - at market                                          |  |               | 31,689 |   |                   |   | 30,859 |  
|Securities to be held to maturity - at cost                                        |  |               | 13,070 |   |                   |   | 13,094 |  
|Loans receivable, net of allowance for loan losses of $743 in each period          |  |               | 49,275 |   |                   |   | 47,180 |  
|Accrued interest receivable                                                        |  |               | 664    |   |                   |   | 579    |  
|Federal Home Loan Bank stock, at cost                                              |  |               | 1,233  |   |                   |   | 1,199  |  
|Real estate investment, limited partnership - at equity                            |  |               | 62     |   |                   |   | 87     |  
|Real estate owned                                                                  |  |               |       |   |                   |   | 35     |  
|Prepaid expenses and other assets                                                  |  |               | 420    |   |                   |   | 337    |  
|Prepaid federal income taxes                                                       |  |               | 62     |   |                   |   | 119    |  
|Deferred federal income taxes                                                      |  |               | 551    |   |                   |   | 141    |  
|Premises and equipment, at cost less accumulated depreciation                      |  |               | 315    |   |                   |   | 330    |  
|                                                                                   |  |               |        |   |                   |   |        |  
|TOTAL ASSETS                                                                       |  | $             | 98,726 |   |                   | $ | 98,516 |  
|                                                                                   |  |               |        |   |                   |   |        |  
|                                                                                   |  |              
|LIABILITIES                                                                        |  |               |        |   |                   |   |        |  
|                                                                                   |  |              
|Deposits                                                                           |  |               | 59,849 |   |                   |   | 60,802 |  
|Accrued interest payable                                                           |  |               | 161    |   |                   |   | 152    |  
|Accounts payable and other liabilities                                             |  |               | 607    |   |                   |   | 666    |  
|Federal Home Loan Bank advances                                                    |  |               | 22,500 |   |                   |   | 20,500 |  
|                                                                                   |  |               |        |   |                   |   |        |  
|TOTAL LIABILITIES                                                                  |  |               | 83,117 |   |                   |   | 82,120 |  
|                                                                                   |  |               |        |   |                   |   |        |  
|                                                                                   |  |              
|SHAREHOLDERS EQUITY                                                               |  |               |        |   |                   |   |        |  
|Preferred stock, $.01 par value, authorized 500,000 shares; none outstanding       |  |               |       |   |                   |   |       |  
|Common stock, $.01 par value, authorized 6,000,000 shares; 1,754,411 shares issued |  |               | 18     |   |                   |   | 18     |  
|Paid in capital                                                                    |  |               | 7,015  |   |                   |   | 7,015  |  
|Retained earnings                                                                  |  |               | 14,529 |   |                   |   | 14,523 |  
|Net unrealized gains (losses) on securities available for sale                     |  |               | (380   | ) |                   |   | 413    |  
|Common stock purchased by the Employee Stock Ownership Plan                        |  |               | (390   | ) |                   |   | (390   | )
|Treasury stock - 368,858 shares in each period                                     |  |               | (5,183 | ) |                   |   | (5,183 | )
|                                                                                   |  |               |        |   |                   |   |        |  
|TOTAL SHAREHOLDERS EQUITY                                                         |  |               | 15,609 |   |                   |   | 16,396 |  
|                                                                                   |  |               |        |   |                   |   |        |  
|                                                                                   |  |              
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                         |  | $             | 98,726 |   |                   | $ | 98,516 |  
|                                                                                   |  |               |        |   |                   |   |        |  

SEE ACCOMPANYING NOTES



2



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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

(In thousands, except share data)

(Unaudited)



|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|--------------------------------------------------- |  | ------------------ | ----- | ---------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                                    |  | Three Months Ended |       | Six Months Ended
|                                                    |  | June 30            |       | June 30         
|                                                    |  | 2006               |       | 2005             |   | 2006  |  | 2005
|Interest income:                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|First mortgage loans                                |  | $                  | 728   |                  | $ | 659   |  | $    | 1,436 |  | $ | 1,304
|Consumer and other loans                            |  |                    | 49    |                  |   | 33    |  |      | 94    |  |   | 67   
|Mortgage-backed and related securities              |  |                    | 127   |                  |   | 167   |  |      | 259   |  |   | 348  
|Investments                                         |  |                    | 409   |                  |   | 318   |  |      | 801   |  |   | 629  
|Interest-bearing deposits                           |  |                    | 10    |                  |   | 44    |  |      | 28    |  |   | 73   
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|TOTAL INTEREST INCOME                               |  |                    | 1,323 |                  |   | 1,221 |  |      | 2,618 |  |   | 2,421
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|                                                    |  |                    |       |                 
|Interest expense:                                   |  |                    |       |                  |   |       |  |      |       |  |   |      
|Deposits                                            |  |                    | 365   |                  |   | 292   |  |      | 699   |  |   | 563  
|Borrowings                                          |  |                    | 274   |                  |   | 245   |  |      | 515   |  |   | 473  
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|TOTAL INTEREST EXPENSE                              |  |                    | 639   |                  |   | 537   |  |      | 1,214 |  |   | 1,036
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|                                                    |  |                    |       |                 
|NET INTEREST INCOME                                 |  |                    | 684   |                  |   | 684   |  |      | 1,404 |  |   | 1,385
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|                                                    |  |                    |       |                 
|Provision for loan losses                           |  |                    |      |                  |   |      |  |      |      |  |   |     
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                    | 684   |                  |   | 684   |  |      | 1,404 |  |   | 1,385
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|                                                    |  |                    |       |                 
|Noninterest income:                                 |  |                    |       |                  |   |       |  |      |       |  |   |      
|Gain on sale of securities                          |  |                    | 105   |                  |   | 329   |  |      | 170   |  |   | 401  
|Service fees and other income                       |  |                    | 11    |                  |   | 12    |  |      | 23    |  |   | 26   
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|TOTAL NONINTEREST INCOME                            |  |                    | 116   |                  |   | 341   |  |      | 193   |  |   | 427  
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|                                                    |  |                    |       |                 
|Noninterest expense:                                |  |                    |       |                  |   |       |  |      |       |  |   |      
|Equity in loss of limited partnership               |  |                    | 16    |                  |   | 5     |  |      | 25    |  |   | 10   
|Loss on Sale of Real Estate Owned                   |  |                    |      |                  |   |      |  |      | 8     |  |   |     
|Compensation and benefits                           |  |                    | 253   |                  |   | 251   |  |      | 501   |  |   | 502  
|Occupancy and equipment                             |  |                    | 28    |                  |   | 25    |  |      | 57    |  |   | 48   
|Federal deposit insurance premiums                  |  |                    | 2     |                  |   | 2     |  |      | 4     |  |   | 4    
|Legal and audit                                     |  |                    | 56    |                  |   | 85    |  |      | 90    |  |   | 124  
|Franchise taxes                                     |  |                    | 52    |                  |   | 47    |  |      | 103   |  |   | 97   
|Other operating expense                             |  |                    | 90    |                  |   | 88    |  |      | 172   |  |   | 158  
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|TOTAL NONINTEREST EXPENSE                           |  |                    | 497   |                  |   | 503   |  |      | 960   |  |   | 943  
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|                                                    |  |                    |       |                 
|INCOME BEFORE INCOME TAXES                          |  |                    | 303   |                  |   | 522   |  |      | 637   |  |   | 869  
|                                                    |  |                    |       |                 
|Federal income taxes                                |  |                    | 109   |                  |   | 162   |  |      | 206   |  |   | 265  
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|NET INCOME                                          |  | $                  | 194   |                  | $ | 360   |  | $    | 431   |  | $ | 604  
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|EARNINGS PER SHARE                                  |  | $                  | 0.15  |                  | $ | 0.27  |  | $    | 0.32  |  | $ | 0.46 
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      
|DILUTED EARNINGS PER SHARE                          |  | $                  | 0.15  |                  | $ | 0.27  |  | $    | 0.32  |  | $ | 0.46 
|                                                    |  |                    |       |                  |   |       |  |      |       |  |   |      

SEE ACCOMPANYING NOTES.



3



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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

(In thousands)

(Unaudited)



|                                             |  |                          |        |   |      |   |     |  
|-------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | --- | -
|                                             |  | Six Months EndedJune 30, |       
|                                             |  | 2006                     |        |   | 2005 |  
|Net income                                   |  | $                        | 431    |   |      | $ | 604 |  
|Other comprehensive income:                  |  |                          |        |   |      |   |     |  
|Unrealized gains (losses) on securities:     |  |                          |        |   |      |   |     |  
|Unrealized gains (losses) arising for period |  |                          | (1,032 | ) |      |   | 121 |  
|Related income tax (benefit)                 |  |                          | (351   | ) |      |   | 41  |  
|                                             |  |                          |        |   |      |   |     |  
|                                             |  |                          | (681   | ) |      |   | 80  |  
|Reclassification adjustment:                 |  |                          |        |   |      |   |     |  
|Gain included in net income                  |  |                          | (170   | ) |      |   | (72 | )
|                                             |  |                          |        |   |      |   |     |  
|Related income tax                           |  |                          | 59     |   |      |   | 25  |  
|                                             |  |                          |        |   |      |   |     |  
|                                             |  |                          | (111   | ) |      |   | (47 | )
|Other comprehensive income (loss)            |  |                          | (792   | ) |      |   | 33  |  
|                                             |  |                          |        |   |      |   |     |  
|                                             |  |                         
|COMPREHENSIVE INCOME (LOSS)                  |  | $                        | (361   | ) |      | $ | 637 |  
|                                             |  |                          |        |   |      |   |     |  

SEE ACCOMPANYING NOTES.



4



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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

(In thousands)

(Unaudited)



|                                                                                                            |  |                          |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                                            |  | Six Months EndedJune 30, |       
|                                                                                                            |  | 2006                     |        |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                        |  |                          |        |   |      |   |        |  
|Net income                                                                                                  |  | $                        | 431    |   |      | $ | 604    |  
|Adjustments to reconcile net income to net cash provided by operating activities                            |  |                          |        |   |      |   |        |  
|Deferred income taxes                                                                                       |  |                          | (1     | ) |      |   | (18    | )
|Depreciation                                                                                                |  |                          | 22     |   |      |   | 13     |  
|Amortization of deferred loan fees and costs                                                                |  |                          | (13    | ) |      |   | (28    | )
|Amortization of discounts and premiums on investments and mortgage-backed and related securities            |  |                          | 5      |   |      |   | 14     |  
|Gain on sale of securities                                                                                  |  |                          | (170   | ) |      |   | (401   | )
|Equity in loss of limited partnership                                                                       |  |                          | 25     |   |      |   | 10     |  
|Provision for loan losses                                                                                   |  |                          |       |   |      |   |       |  
|Federal Home Loan Bank stock dividends                                                                      |  |                          | (34    | ) |      |   | (26    | )
|                                                                                                            |  |                          |        |   |      |   |        |  
|                                                                                                            |  |                          | 265    |   |      |   | 168    |  
|                                                                                                            |  |                         
|Net increase in accrued interest receivable, prepaid expenses and other assets                              |  |                          | (111   | ) |      |   | (360   | )
|Net increase (decrease) in accrued interest, accounts payable and other liabilities                         |  |                          | (50    | ) |      |   | 29     |  
|                                                                                                            |  |                          |        |   |      |   |        |  
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                                         |  |                          | 104    |   |      |   | (163   | )
|                                                                                                            |  |                          |        |   |      |   |        |  
|                                                                                                            |  |                         
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                        |  |                          |        |   |      |   |        |  
|Proceeds from sale of securities available for sale                                                         |  |                          | 172    |   |      |   | 73     |  
|Purchase of securities available for sale                                                                   |  |                          | (2,987 | ) |      |   | (4,500 | )
|Proceeds from maturity of securities available for sale                                                     |  |                          |       |   |      |   | 2,000  |  
|Proceeds from principal payments on mortgage-backed and related securities - held to maturity               |  |                          | 24     |   |      |   | 29     |  
|Proceeds from principal payments on mortgage-backed and related securities - available for sale             |  |                          | 948    |   |      |   | 1,969  |  
|Net decrease in interest-bearing deposits with banks                                                        |  |                          | 2,417  |   |      |   | 668    |  
|Net increase in loans                                                                                       |  |                          | (2,082 | ) |      |   | (714   | )
|Proceeds from sale of Intrieve stock                                                                        |  |                          |       |   |      |   | 344    |  
|Additions to premises                                                                                       |  |                          | (7     | ) |      |   | (13    | )
|                                                                                                            |  |                          |        |   |      |   |        |  
|NET CASH USED IN INVESTING ACTIVITIES                                                                       |  |                          | (1,515 | ) |      |   | (144   | )
|                                                                                                            |  |                          |        |   |      |   |        |  
|                                                                                                            |  |                         
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                        |  |                          |        |   |      |   |        |  
|Net decrease in savings accounts, money market deposit accounts and negotiable order of withdrawal accounts |  |                          | (2,791 | ) |      |   | (1,647 | )
|Net increase in certificates of deposit                                                                     |  |                          | 1,838  |   |      |   | 499    |  
|Purchase of Treasury shares                                                                                 |  |                          |       |   |      |   |       |  
|Cash dividends paid on common stock                                                                         |  |                          | (425   | ) |      |   | (419   | )
|Proceeds from Federal Home Loan Bank Advances                                                               |  |                          | 4,300  |   |      |   | 2,000  |  
|Repayment of Federal Home Loan Bank Advances                                                                |  |                          | (2,300 | ) |      |   |       |  
|Incentive stock options exercised                                                                           |  |                          |       |   |      |   |       |  
|                                                                                                            |  |                          |        |   |      |   |        |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                                                   |  |                          | 622    |   |      |   | 433    |  
|                                                                                                            |  |                          |        |   |      |   |        |  
|NET INCREASE (DECREASE) IN CASH                                                                             |  |                          | (789   | ) |      |   | 126    |  
|CASH AT BEGINNING OF PERIOD                                                                                 |  |                          | 1,488  |   |      |   | 1,075  |  
|                                                                                                            |  |                          |        |   |      |   |        |  
|CASH AT END OF PERIOD                                                                                       |  | $                        | 699    |   |      | $ | 1,201  |  
|                                                                                                            |  |                          |        |   |      |   |        |  
|Cash paid during the period for:                                                                            |  |                          |        |   |      |   |        |  
|Interest                                                                                                    |  | $                        | 1,187  |   |      | $ | 1,032  |  
|Income taxes                                                                                                |  | $                        | 150    |   |      | $ | 330    |  

SEE ACCOMPANYING NOTES



5



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NOTES TO FINANCIAL STATEMENTS

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

June 30, 2006 and 2005 (Unaudited)

NOTE A  SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting
policies followed by First Niles Financial, Inc. (First Niles) and its wholly owned subsidiary, Home Federal Savings and Loan Association of Niles (the Association) are in accordance with accounting principles generally
accepted in the United States of America and conform to general practices within the savings and loan industry.

The accompanying unaudited financial
statements were prepared in accordance with instructions for Form 10-QSB and, therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of America. Management believes that all normal recurring adjustments that are necessary for a fair presentation of interim period financial information have been reflected in these
financial statements. The results of operations for the interim periods discussed herein are not necessarily indicative of the results that may be expected for a full year. These interim financial statements should be read in conjunction with the
consolidated financial statements and Notes included in the First Niles Financial, Inc. Annual Report on Form 10-KSB for the year ended December 31, 2005.

NOTE B  STOCK CONVERSION

On
October 26, 1998, First Niles began trading as a public company on the Nasdaq SmallCap Market. First Niles issued 1,754,411 shares, $.01 par value common stock, at $10.00 per share, raising $15.5 million, net of shares acquired by the newly
formed Employee Stock Ownership Plan (the ESOP) and net of the costs of the conversion. Home Federal Savings and Loan Association of Niles converted to a federal stock savings and loan association and simultaneously received proceeds of
$8.5 million in exchange for all of its common stock to First Niles. This transaction was accounted for using historical cost in a manner similar to that in a pooling of interests.

NOTE C  EARNINGS PER SHARE

Basic
earnings per share is computed by dividing net income by the weighted-average shares outstanding, during the period, less weighted-average shares in the ESOP that are unallocated and not committed to be released. Diluted earnings per share reflect
the potential effect of stock options and is calculated using the treasury stock method. At June 30, 2006, the market price of First Niles stock exceeded the exercise price of all outstanding options; the resulting dilution, is presented
in the following table, as rounded to the nearest whole cent.



6



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The following table sets forth the computation of earnings per share for the three and six month periods ended
June 30, 2006 and June 30, 2005 (income in thousands):



|                                                |  |                            |           |                           |   |           |  |      |           |  |   |          
|----------------------------------------------- |  | -------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                |  | Three Months EndedJune 30, |           | Six Months Ended June 30,
|                                                |  | 2006                       |           | 2005                      |   | 2006      |  | 2005
|Net income                                      |  | $                          | 194       |                           | $ | 360       |  | $    | 431       |  | $ | 604      
|                                                |  |                            |           |                           |   |           |  |      |           |  |   |          
|Earnings applicable to basic earnings per share |  | $                          | 194       |                           | $ | 360       |  | $    | 431       |  | $ | 604      
|                                                |  |                            |           |                           |   |           |  |      |           |  |   |          
|Average common shares                           |  |                            | 1,384,553 |                           |   | 1,384,553 |  |      | 1,384,553 |  |   | 1,384,553
|Less average unallocated ESOP shares            |  |                            | 52,069    |                           |   | 68,366    |  |      | 54,021    |  |   | 70,429   
|                                                |  |                            |           |                           |   |           |  |      |           |  |   |          
|Average common shares outstanding  basic       |  |                            | 1,332,484 |                           |   | 1,316,187 |  |      | 1,330,532 |  |   | 1,314,124
|                                                |  |                            |           |                           |   |           |  |      |           |  |   |          
|Average common shares outstanding - diluted     |  |                            | 1,338,128 |                           |   | 1,327,643 |  |      | 1,337,400 |  |   | 1,325,549
|                                                |  |                            |           |                           |   |           |  |      |           |  |   |          
|Earnings per share - basic                      |  | $                          | 0.15      |                           | $ | 0.27      |  | $    | 0.32      |  | $ | 0.46     
|                                                |  |                            |           |                           |   |           |  |      |           |  |   |          
|diluted                                         |  | $                          | 0.15      |                           | $ | 0.27      |  | $    | 0.32      |  | $ | 0.46     
|                                                |  |                            |           |                           |   |           |  |      |           |  |   |          

Item 2. Managements Discussion and Analysis

Executive Overview

First Niles Financial, Inc., a Delaware
corporation, was formed in July 1998 to act as the holding company for Home Federal Savings and Loan Association of Niles upon the completion of Home Federals conversion from mutual to stock form. The conversion was completed on
October 26, 1998. References in this Form 10-QSB to we, us, and our refer to First Niles and/or Home Federal as the context requires

Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent and construction loans secured by first mortgages on owner-occupied, one-to-four
family residences. We also originate, to a lesser extent, loans secured by first mortgages on non-owner-occupied one-to-four family residences, permanent and construction commercial and multi-family real estate loans, and consumer loans. Excess
funds are generally invested in investment securities and mortgage-backed and related securities. Additionally, we borrow funds from the Federal Home Loan Bank (FHLB) and reinvest the proceeds in investment securities at favorable
interest rate spreads.

Short-term market interest rates generally increased during the second quarter of 2006, continuing a trend that started over one
year ago. As a result, the yield curve remained relatively flat, due to long term interest rates not rising near as much as short-term rates during this time period. This interest rate environment is likely to have a negative impact on our results
of operations, as our interest-bearing liabilities generally are priced in relation to short-term market interest rates, while our interest-earning assets generally are priced in relation to long-term interest rates. As a result our spread has
generally decreased over the past year. If this trend continues, we expect our spread to decrease even further. Additionally, if both short-term and long-term interest rates increase to a similar degree, our spread may still decrease because our
interest-bearing liabilities reprice faster than our interest-earning assets.

In order to diminish the effect of the interest rate environment, described
above, management has gradually been shortening the average life of our investment portfolio and generally focused new purchases of securities into single step, U.S. agency securities with maturities of six years or less. Typically, these securities
have a fixed interest rate for periods ranging from two to three years and are callable by the issuer, at various intervals, during this time. After this initial fixed interest rate period, the security is



7



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either called, or the interest rate rises significantly, and the security is no longer callable. Management has generally
limited its purchases of such securities to those with interest rate steps of a least 200 basis points. Management has also attempted to keep the interest rates paid on deposits below market rates during this time. However, this pricing strategy
must be balanced against the possibility of losing some deposits, which has been the case, though to a relatively minimal degree. Additionally, the effect of the current interest rate environment has also been lessened by an increase in the average
balance of loans receivable, which generally have a higher yield than investment securities.

The following discussion compares our consolidated financial
condition at June 30, 2006 to December 31, 2005 and the results of operations for the three and six month periods ended June 30, 2006 with the same periods ended June 30, 2005. This discussion should be read in conjunction with the consolidated
financial statements and footnotes included herein.

Comparison of Financial Condition at June 30, 2006 and December 31, 2005

Total assets increased by $210,000 or 0.2%, to $98.7 million at June 30, 2006 from $98.5 million at December 31, 2005. This increase was primarily reflected in a
$2.1 million increase in net loans receivable, a $806,000 increase in total investment securities, and a $410,000 increase in deferred federal income tax asset, partially offset by a $3.2 million decrease in total cash and cash equivalents.

The aforementioned increase in assets was primarily related to a $997,000 increase in total liabilities, partially offset by a $787,000 decrease in
shareholders equity. During the quarter, we borrowed an additional $2.0 million from the FHLB for general funding purposes, including deposit withdrawals and loan originations. These additional borrowings were partially offset by a $953,000
decrease in deposits during this six month time period. The decrease in deposits was comprised of a $2.8 million aggregate decrease in savings accounts and negotiable order of withdrawal (NOW) accounts partially offset by a $1.8 million
increase in certificates of deposit and an $80,000 increase in demand account deposits.

Shareholders equity at June 30, 2006 was $15.6 million, a
$787,000, or 4.8% decrease from December 31, 2005. The decrease in shareholders equity was essentially the result of a $793,000 decrease in net unrealized gains on securities available for sale. Book value per share was $11.27 at June 30,
2006, compared to $11.84 at December 31, 2005, primarily due to the decrease in shareholders equity as discussed above. The dividend paid during the first six months of 2006 totaled $425,000 and was equivalent to $0.16 per common share, per
quarter. At both June 30, 2006 and December 31, 2005, there were 1,384,553 shares of common stock outstanding.

Nonperforming loans, consisting of
nonaccruing loans and accruing loans delinquent more than 90 days totaled $887,000 at June 30, 2006, or 0.9% of total assets, compared to $905,000 or 0.9% of total assets as of December 31, 2005. The allowance for loan losses was $743,000
at June 30, 2006, representing coverage of 83.8% of non-performing loans. The allowance for loan losses at June 30, 2006 represented 1.5% of net loans receivable. At December 31, 2005, the allowance for loan losses was also $743,000
and represented coverage of 82.1% of nonperforming loans and 1.6% of net loans receivable. Management believes that the current level of the allowance for loan losses remains adequate to absorb losses resulting from uncollectible loans. At
June 30, 2006 we had no real estate owned as the result of foreclosure. At December 31, 2005 we had $35,000 in real estate owned as the result of foreclosure.



8



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Results of Operations

General.Our results of operations depend primarily on our net interest income, which is determined by (i) the difference between interest earned on interest earning assets, consisting primarily of mortgage loans, collateralized
mortgage obligations, other investments and interest bearing deposits in other institutions, and interest expense on interest bearing liabilities, primarily deposits and borrowings, and (ii) the relative amounts of our interest-earning assets
and interest-bearing liabilities. The level of non-interest income, such as fees received from customer deposit account service charges and gains on sales of investments, and the level of non-interest expense, such as federal deposit insurance
premiums, salaries and benefits, office occupancy costs, and data processing costs, also affect our results of operations. Finally, our results of operations may also be affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions of regulatory authorities, all of which are beyond our control.

Results
of Operations for the Three-Month Period Ended June 30, 2006 as Compared to June 30, 2005

Net Income.For the three months
ended June 30, 2006, First Niles recorded net income of $194,000 as compared to $360,000 in the comparative 2005 period, a decrease of $166,000, or 46.1%. This net income resulted in an annualized return on average assets of 0.78% as compared
1.43% for the comparative period in 2005. The annualized return on shareholders equity for the three months ended June 30, 2006 was 4.84% compared to 8.82% for the three months ended June 30, 2005. Basic earnings per share and
diluted earnings per share for the three months ended June 30, 2006 was $0.15, as compared to $0.27 for the same period in 2005.

Net Interest
Income.Net interest income remained unchanged at $684,000, for the three month period ended June 30, 2006 as compared to the respective 2005 period. For the three months ended June 30, 2006 our interest rate spread was 2.33% as
compared to 2.36% for the comparative period one year prior. The net interest margin for the current three-month period was 2.81% as compared to 2.76% for the same period one year ago. The major factor leading to the stabilization in net interest
rate spread and net interest margin was an increase in higher yielding assets, specifically loans, despite the sustained increase in short term market interest rates over the past year which impacted the liability side of the balance sheet.

For the three months ended June 30, 2006, total interest income increased by $102,000, or 8.4%, as compared to the same period in 2005. Specifically,
income on loans receivable increased $85,000 on a comparative period basis, primarily due to higher average balances.

Interest income on investment
securities, mortgage-backed and related securities increased a collective $51,000 for the three month period ended June 30, 2006 as compared to the same period in 2005, primarily due to higher portfolio yields. Interest from interest-bearing
deposits was $34,000 lower on a comparative period basis, due to significantly lower average balances. Overall, the average yield on interest earning assets increased 50 basis points, from 4.94% during the second quarter of 2005 to 5.44% for the
second quarter of 2006.

The Company continues to maintain borrowings from the FHLB. At June 30, 2006, these borrowings totaled $22.5 million. The
proceeds from $20.5 million of these borrowings have primarily been reinvested into investment securities (leverage strategy). This strategy was undertaken at a net interest rate spread and net interest margin lower than those related to core
operations. The interest rate spread and net interest margin on the leverage strategy was approximately 75 basis points as of June 30, 2006. This leverage strategy requires a negligible amount of administrative expense and is the primary reason
that such an activity can be undertaken at a reduced interest rate spread and net interest margin as compared to core operations, while making a significant contribution to net income.



9



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During the second quarter of 2006, $2.0 million in FHLB Advances were obtained for general funding, including loan
originations and deposit withdrawals. These borrowings were in the form of a $1.0 million cash management advance (CMA) that has a rate set daily and a maturity of approximately 90 days and a $1.0 million portion of a $3.0 million, 18 month fixed
rate advance. The other $2.0 million portion of the aforementioned fixed rate advance was used to refinance part of the leverage strategy funding. Since the most recent $2.0 million in borrowings were not obtained for direct reinvestment, but rather
for general liquidity purposes, they are not included as part of the leverage strategy. The CMA can be prepaid in full or part at any time without penalty, or rolled over for another 90 day term at prevailing market interest rates. The fixed rate
advance may have a prepayment penalty if paid prior to maturity, depending on pre-established contractual terms, including the specific advances yield in relation to the yield on the investment portfolio of the FHLB, as well as other factors.

At June 30, 2006, five of our twelve non-CMA FHLB Advances, totaling $10.0 million, were convertible at the option of the FHLB on a specified date
and quarterly thereafter to a variable rate based on 3-month LIBOR. At the time of conversion, and quarterly thereafter, each advance may be prepaid without penalty. During the quarter ended June 30, 2006, two convertible advances were
converted, at the option of the FHLB, from fixed to variable rates, based on three-month LIBOR. As a result, four of our twelve non-CMA FHLB Advances, as of June 20, 2006 have been converted to variable rates, based on three-month LIBOR. These
LIBOR based advances may be paid off each quarter, without penalty.

Another one of our FHLB Advances has a fixed interest rate and a remaining term as of
June 30, 2006 of approximately two months and may have a prepayment penalty if paid prior to maturity, depending on pre-established contractual terms, including the specific advances yield in relation to the yield on the investment
portfolio of the FHLB, as well as other factors. Our other FHLB Advance, has a variable interest rate set at 265 basis points below the prime rate and a remaining maturity as of June 30, 2006 of approximately 10 months and may be prepaid on a
semi-annual basis without a penalty.

During the three months ended June 30, 2006, total interest expense increased by $102,000, or 19.0%, as compared
to the same three-month period one year prior. Interest on deposits increased $73,000, or 25.0%, from period to period. The average interest rate on deposits for the quarter, which comprised 72.7% of total interest bearing liabilities at
June 30, 2006, increased to 2.43%, 51 basis points higher than for the same period one year ago. The average interest rate on FHLB advances, which comprise the remaining portion of interest bearing liabilities, increased to 4.93% for the three
months ended June 30, 2006 from 4.41% for the same period of the prior year. Interest expense on FHLB Advances increased to $274,000 for the three months ended June 30, 2006 from $245,000 for the same period of the prior year, due to
higher average balances and higher interest rates. The overall cost of funds for the quarter ended June 30, 2006 was 3.11%, 53 basis points higher than for the comparative quarter one year ago.

Provision for Loan Losses.For the three months ended June 30, 2006 there was no provision for loan losses, unchanged from the comparative period in 2005.
The provision for loan losses is a result of managements periodic analysis of risks inherent in our loan portfolio from time to time, as well as the adequacy of the allowance for loan losses. It is our policy to provide valuation allowances
for estimated losses on loans based upon past loss experience, current trends in the level of delinquent and specific problem loans, loan concentrations to single borrowers, adverse situations that may affect the borrowers ability to repay,
the estimated value of any underlying collateral, and current and anticipated economic conditions in our market area. Accordingly, the calculation of the adequacy of the allowance for loan losses is not based directly on the level of non-performing
assets.



10



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Management will continue to monitor the allowance for loan losses and make future additions to the allowance through the
provision for loan losses as economic conditions dictate. Although we maintain the allowance for loan losses at a level which we consider to be adequate to provide for losses, there can be no assurance that future losses will not exceed estimated
amounts or that additional provisions for loan losses will not be required in future periods. In addition, managements determination as to the amount of the allowance for loan losses is subject to review by the Office of Thrift Supervision and
the Federal Deposit Insurance Corporation, as part of their examination process, which may result in the establishment of an additional allowance.

Noninterest Income.Noninterest income of $116,000 for the three months ended June 30, 2006 was $225,000 lower than during the same period in 2005. This decrease was essentially the result of a $224,000 decrease in gain
on sale of investment securities in the current quarter as compared to previous comparative quarter. The entire gain on sale of investments during the quarter one year ago was attributable to the sale of our stock in Intrieve Incorporated due to its
acquisition by Harland Financial Solutions, Inc. Intrieve, Incorporated, which was owned by numerous financial institutions, including the Association, was also the primary data processing service provider to the Association. Harland Financial
Solutions, Inc. will continue as the primary data service provider to the Association. Service fees and other income increased $1,000, or 9.1%, on a period to period comparative basis.

Noninterest Expense.Noninterest expense decreased $6,000, or 1.2%, for the three months ended June 30, 2006 as compared to the same period in 2005. Other operating expense decreased $2,000 on a
quarter to quarter comparative period basis. Legal and audit expense decreased $29,000 on a comparative period basis primarily due to the Companys exploration of strategic alternatives that could be utilized to minimize or eliminate the costs
associated with the implementation and maintenance of compliance with Sarbanes Oxley, Section 404 that began last year. These decreases were partly offset by an $11,000 increase in equity in loss of limited partnership and several other small
increases in various expense categories.

Federal Income Taxes.The provision for federal income taxes decreased by $53,000 in the three
months ended June 30, 2006 as compared to the same period in 2005, resulting in an income tax provision of $109,000. The decrease in the provision for federal income taxes as compared to the same period in 2005 was primarily due to a $219,000
decrease in pre-tax income from period to period. The effective tax rate in the current three month period was 36.0%, as compared to 31.0% one year prior. The above effective tax rates differ from the statutory rate of 34.0% primarily due to our
ownership interest in a low income housing tax credit program. The tax credits from this program will expire during 2006.

Results of Operations for the
Six-Month Periods Ended June 30, 2006 as Compared to June 30, 2005

Net Income.First Niles recorded net income of $431,000 for
the six months ended June 30, 2006, as compared to $604,000 for the six months ended June 30, 2005, a decrease of $173,000, or 28.6%. The decrease in net income was comprised of a $234,000 decrease in noninterest income and a $17,000
increase in noninterest expense, partially offset by a $19,000 increase in net interest income and a $59,000 decrease in federal income tax expense. Our annualized return on average assets for the six-month period ended June 30, 2006 was 0.87%,
compared to 1.21% for the same period one year ago. Our annualized return on average shareholders equity was 5.32% for the six months ended June 30, 2006 as compared to 7.40% for the same period one year ago. Earnings per share, on a
basic and diluted basis, for the six months ended June 30, 2006 was $0.32, as compared to $0.46, for the same six month period in 2005.



11



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Net Interest Income.Net interest income increased by $19,000, or 1.4% for the six months ended
June 30, 2006 as compared to the respective 2005 period. For the six months ended June 30, 2006, total interest income increased by $197,000 and total interest expense increased by $178,000 as compared to the same period in 2005. For the
six months ended June 30, 2006, the interest rate spread was 2.41%, unchanged from the six months ended June 30, 2005. For the six months ended June 30, 2006 the net interest margin was 2.89% as compared to 2.82% for the six months
ended June 30, 2005. For the six months ended June 30, 2006 the yield on interest earning assets was 5.40% as compared to 4.94% for the six months ended June 30, 2005, an increase of 46 basis points. The overall cost of funds was
2.99% for the six months ended June 30, 2006 as compared to 2.53% for the same period in 2005, also an increase of 46 basis points. The primary factor leading to the increase in net interest income and net interest margin was an increase in
higher yielding assets, specifically loans. This asset shift counteracted much of the effect of the sustained rise in market interest rates over the past year, which increased the overall cost of our interest bearing liabilities.

Provision for Loan Losses.The Company had no provision for loan losses for the six months ended June 30, 2006, unchanged from the six months ended
June 30, 2005.

Noninterest Income.Noninterest income totaled $193,000 for the six months ended June 30, 2006 as compared to
$427,000 for the same period in 2005. This decrease was essentially attributable to a $231,000 decrease in gain on sale of investment securities in the current period as compared to the prior comparative period and is generally due to the same event
as explained in the quarterly comparison.

Noninterest Expense.Noninterest expense increased $17,000, or 1.8%, for the six months ended
June 30, 2006 as compared to the same period one year earlier. This increase was primarily attributable to a $15,000 increase in equity in loss of limited partnership, a $14,000 increase in other operating expense, a $9,000 increase in
occupancy and equipment, an $8,000 loss on sale of real estate owned and a $6,000 increase in franchise taxes, partially offset by a $34,000 reduction in legal and audit expense.

Federal Income Taxes.The provision for federal income taxes decreased by $59,000 for the six months ended June 30, 2006 as compared to the same period in 2005. The decrease in the provision for
federal income taxes was primarily due to a decrease in pre-tax income of $232,000. The effective tax rate was 32.3% for the six month period ended June 30, 2006 compared to 30.5% in the same period one year earlier. The above effective tax
rates differ from the statutory rate of 34.0% primarily due to our ownership interest in a low income housing tax credit program. The tax credits from this program will expire during 2006.

Liquidity and Capital Resources

Our main source of funds are
deposits, and loan and securities repayments. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and loan prepayments are more influenced by interest rates, general economic conditions and competition.
Safe and sound banking practices require us to maintain cash and eligible investments at levels that assure our ability to meet demands for deposit withdrawals and the repayment requirements of short-term borrowings, if any. We believe that
sufficient funds are available for us to meet our current liquidity needs. Total cash and cash equivalents amounted to $1.4 million at June 30, 2006.

We use our capital resources to meet ongoing commitments to fund various types of deposit withdrawals, to invest in securities, to fund existing and future loan commitments, to maintain liquidity, and to meet operating expenses. At
June 30, 2006, we had outstanding commitments to extend credit or purchase securities totaling $4.0 million, including $2.1 million of unused consumer lines of credit.



12



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Home Federal is required to maintain minimum regulatory capital sufficient to meet tangible, core and risk-based capital
ratios of 1.5%, 4.0% and 8.0%, respectively. As of June 30, 2006, Home Federal significantly exceeded its regulatory capital requirements, with tangible, core, and risk-based capital ratios of 15.58%, 15.58% and 38.18%, respectively.

Off-Balance Sheet Arrangements

We are a party to
financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments consist of unfunded loan commitments. Our unfunded loan commitments consist of unfunded
mortgage loans, construction loans and home equity lines of credit, which extend for terms of approximately 30 days, 180 days and up to ten years, respectively. The credit risk in issuing unfunded loan commitments is essentially the same as the
credit risk associated with loan products that have been funded. An unfunded loan commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Our exposure to credit
loss in the event of nonperformance by the other party to the instrument is represented by the contractual notional amount of the instrument.

Since
certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily reflect future cash requirements. We use the same credit policies in making commitments to extend credit as we do for on-balance
sheet instruments. Collateral held for commitments to extend credit varies but may include unimproved and improved real estate, certificates of deposit or personal property.

The following table summarizes our off-balance sheet financial instruments whose contract amounts represent credit risk as of June 30, 2006:



|                                                      |  |   |            
|----------------------------------------------------- |  | - | -----------
|Unfunded mortgage loans, including construction loans |  | $ | 1.9 million
|Home equity lines of credit                           |  | $ | 2.1 million
|Investment security purchase commitments              |  | $ | 0.0 million

Cautionary Forward-looking Statements

This document, including information incorporated by reference, contains, and future filings by First Niles Financial, Inc. on Form 10-KSB, Form 10-QSB, and Form 8-K and future oral and written statements by First
Niles and its management, may contain forward-looking statements about First Niles and its subsidiary which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without
limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, cost savings and funding advantages expected or anticipated to be realized by management. Words such as may, could,
should, would, believe, anticipate, estimate, expect, intend, plan and similar expressions are intended to identify forward looking statements. Forward-looking statements by First Niles and its management are based on beliefs, plans, objectives,
goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. First Niles disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future
events, the receipt of new information, or otherwise. The important factors we discuss below, as well as other factors discussed under the caption Managements Discussion and Analysis in this document and identified in our filings
with the SEC and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document.



13



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The following factors, many of which are subject to change based on various other factors beyond our control, could cause
our financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward looking statements:



| |  |  | the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financial markets interest rate and monetary fluctuations particularly the relative relationship of short-term interest rates to long-term interest rates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timely development of and acceptance of new products and services of Home Federal and the perceived overall value of these products and services by users, including the
features, pricing and quality compared to competitors products and services;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our status as a public-reporting company;
| | - |  | -----------------------------------------



| |  |  | the willingness of users to substitute competitors products and services for our products and services;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the impact of changes in financial services laws and regulations (including laws concerning taxes, accounting, banking, securities and insurance);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of technological changes;
| | - |  | ------------------------------------



| |  |  | acquisitions;
| | - |  | -------------



| |  |  | changes in consumer spending and saving habits; and
| | - |  | ---------------------------------------------------



| |  |  | our success at managing the risks involved in the foregoing.
| | - |  | ------------------------------------------------------------

Item 3. Controls and Procedures

An evaluation of the Companys disclosure controls and procedures (as defined in
Section 13a-15(e) of the Securities Exchange Act of 1934 (the Exchange Act) as of June 30, 2006, was carried out under the supervision and with the participation of the Companys Chief Executive Officer, Principal
Financial Officer and several other members of the Companys senior management. The Companys Chief Executive Officer and Principal Financial Officer concluded that the Companys disclosure controls and procedures as currently in
effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Companys management (including the Chief
Executive Officer and Principal Financial Officer) in a timely manner to allow decisions regarding disclosure and (ii) recorded processed, summarized and reported within the time periods specified in the SECs rules and forms. There have
been no changes in our internal control over financial reporting (as defined in 13a-15(f) of the Act) that occurred during the quarter ended June 30, 2006, that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

The Company intends to continually review and evaluate the design and effectiveness of its disclosure
controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material non-financial information
concerning the Companys business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure
controls and procedures.



14



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PART II - OTHER INFORMATION

Item 1. Legal Proceedings:

There are no matters required to be reported under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) There are no matters required to be reported under this item.

(b) There are no matters required to be reported under this item.

(c) There are no matters required to be
reported under this item.

Item 3. Defaults Upon Senior Securities:

There are no matters required to be reported under this item.

Item 4. Submission of Matters to a Vote of Security Holders:

The annual meeting
of shareholders of First Niles was held on April 26, 2006 at our office in Niles, Ohio. At that meeting the shareholders were asked to vote upon (i) the re-election of Director Stephens and the election of Director Nominee Csontos. The
voting on this matter was as follows:

Director Election:



|                  |  |           |  |               |  |            
|----------------- |  | --------- |  | ------------- |  | -----------
|                  |  | Votes For |  | Votes Against |  | Abstentions
|Director Stephens |  | 1,169,585 |  | 50,784        |  | 67         
|Director Csontos  |  | 1,166,562 |  | 52,473        |  | 1,402      

Directors not subject to election at the annual meeting and continuing in office
are William Eddy, P. James Kramer and Robert I. Shaker.

Independent Auditor Ratification:



|                           |  |           |  |               |  |            
|-------------------------- |  | --------- |  | ------------- |  | -----------
|                           |  | Votes For |  | Votes Against |  | Abstentions
|Anness, Gerlach & Williams |  | 1,169,544 |  | 50,225        |  | 667        

Item 5. Other Information:

There are no matters required to be reported under this item.

Item 6. Exhibits :

See attached exhibit index.



15



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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





|                      |  |                                       |  |                                      
|--------------------- |  | ------------------------------------- |  | -------------------------------------
|                      |  | FIRST NILES FINANCIAL, INC.Registrant
|                      |  |                                      
|Date: August 14, 2006 |  | By:                                   |  | /s/ William L. Stephens              
|                      |  |                                       |  | William L. Stephens                  
|                      |  |                                       |  | President and Chief Executive Officer
|                      |  |                                       |  | (Duly Authorized Representative)     
|                      |  |                                      
|Date: August 14, 2006 |  | By:                                   |  | /s/ Thomas G. Maley                  
|                      |  |                                       |  | Thomas G. Maley                      
|                      |  |                                       |  | Controller                           
|                      |  |                                       |  | (Principal Accounting Officer)       



16



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INDEX TO EXHIBITS



|       |  |                                                                                                                                                                                                                                                                                          
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Document                                                                                                                                                                                                                                                                                 
|3      |  | The Certificate of Incorporation and Bylaws, filed on July 10, 1998 as Exhibits 3.1 and 3.2, respectively, to Registrants Registration Statement on Form SB-2 (File No.333-58883), are
incorporated by reference.                                                                       
|       | 
|4      |  | Registrants Specimen Stock Certificate, filed on July 10, 1998 as Exhibit 4 to Registrants Registration Statement on Form SB-2 (File No.333-58883), are incorporated by
reference.                                                                                                     
|       | 
|10.1   |  | Employment Agreement between Registrants operating bank subsidiary and William L. Stephens and Lawrence Safarek filed as Exhibits 10.1 and 10.3 to Registrants Report on Form 10-KSB for
the fiscal year ended December 31, 1998 (File No.0-24849), is incorporated herein by reference.
|       | 
|10.2   |  | Registrants 1999 Stock Option and Incentive Plan, filed on November 12, 1999 as Appendix A to Registrants Proxy Statement on Schedule 14A (FILE No. 0-24849), is incorporated
herein by reference.                                                                                     
|       | 
|10.3   |  | Registrants 1999 Recognition and Retention Plan filed on November 12, 1999 as Appendix B to Registrants Proxy Statement on Schedule 14A (FILE No. 0-24849), is incorporated herein
by reference.                                                                                       
|       | 
|11     |  | Statement re computation of earnings per share (see Note C of the Notes to Financial Statements included in this Form 10-QSB).                                                                                                                                                           
|       | 
|31.1   |  | Rule 13a-14(a) Certification for the Registrants Chief Executive Officer.                                                                                                                                                                                                               
|       | 
|31.2   |  | Rule 13a-14(a) Certification for the Registrants Chief Financial Officer.                                                                                                                                                                                                               
|       | 
|32     |  | Section 1350 Certifications by Registrants Chief Executive Officer and Chief Financial Officer.                                                                                                                                                                                         



17